When it comes to dining, I much prefer takeaway from the Collins Foods (ASX: CKF) the franchisor of Kentucky Fried Chicken, to the fare served up by Domino’s Pizza Enterprises (ASX: DMP). But when evaluating my investing preferences, I have a different set of criteria.
Domino’s is an outstanding investment because it is making the leap from “Good to Great”. This is the title of a book by renowned author Jim Collins, who examined the performance of 1,400 companies over 40 years. By comparing companies in the same industry at a point in time, he determined the reasons for outperformance (defined as delivering returns to investors at least three times the general stock market over 15 years).
There was no miracle moment. In 84 interviews across 11 companies that went from mediocrity to greatness, 80% of the executives didn’t even mention technology as one of the top five factors in their companies’ transformation. However, these organizations use technology as an accelerator of momentum, not a creator of it. That is, once a good business process is established via a slow-build, technology is then employed to great effect.
Domino’s runs a pizza chain comprising both franchises and company-owned stores. Management has been so proactive in accelerating its online presence that Domino’s is often referred to as a technology stock. Digital innovation continues to be a core focus for the company, with Domino’s reporting close to 60% of total sales sourced from online in Australia and over 50% of those sales come from mobile devices.
Domino’s was the first fast food restaurant in Australia and one of the first globally to use Snapchat for commercial activity as well as other social media platforms, including Twitter and Vine. Finally, it is the first Australian company to participate in Google’s “Full Value of Mobile” study and only the second globally.
It is this technology edge that has allowed Domino’s to acquire 75% of Domino’s Japan last August and immediately transform operations. It has now surpassed Pizza Hut in total network sales to become number two in the Japanese market.
In my opinion, Domino’s is a quality, standout Australian business. Broker Morgan Stanley lifted its target price to $22.80 and believes that continued confidence around growth potential over the next three to five years could see the stock trade up to $30.
Sure, you may have missed the initial jump in price, but strong companies with a technological advantage generally continue to deliver.
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Motley Fool contributor Mark Woodruff owns shares in Domino’s Pizza Enterprises.